Population Aging and Its Macroeconomic Impacts on Taiwan
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Yuan-Ho Hsu * Guang-Jong Fann **
Abstract
Population aging is a global demographic trend for the past decades. It’s the result of
“demographic transition” associated with changing demographic structure of rising share of aging and aged people and an increasing mean age of the overall population. The driving force behind this transition is the diminution in fertility rate, associated with an increase in life expectancy. This paper investigates macroeconomic impacts of population aging on Taiwanese economy. A four-sector Auerbach and Kotlikoff (1987) type overlapping generation (OLG) model is builded for this study. The four sectors of the model are the households sector, the sector of the firms, the public sector, and a pay-as-you-go (PAYG) pension system. Main conclusion drawn from this study is that population aging is detrimental to saving and capital formation in the aging economy of Taiwan. Population aging also yields shrinking working-age labor share and has negative impacts on the middle- and old-aged labor supply. The simulation results from the model indicate that population aging would create unfavorable impacts on future economic growth in Taiwan.
Key words: Population Aging, Saving, CGE Model JEL code: J14, E21, O47
* Aging Economy Research Center/Department of Economics, National Cheng Kung University, Tainan, Taiwan. Email: yhhsu@mail.ncku.edu.tw
** Aging Economy Research Center/Department of Economics, National Cheng Kung University, Tainan, Taiwan. Email: gjfann@mail.ncku.edu.tw; gjfann@gmail.com
